Spanish bonds signal tough road ahead

Spain's new government failed to inspire faith in its bonds, as the yields in the most recent t-bill auction were sky-high.

NEW YORK (CNNMoney) -- Spain's newly-installed government has done little to restore faith in the country's economy so far, with the first post-election debt auctions drawing sales at their highest rates in years.

"The worries of the last couple of weeks continue to fester amid poor liquidity," said European bond analyst Martin Harvey of Threadneedle in London. "We haven't seen any details of new measures to be implemented by the incoming government, whose election manifesto was intentionally vague."

That's flirting with the 7% bailout danger zone. In fact, the yield on Spain's 10-year note came within spitting distance of that level just last week.

Even though 7% does not automatically trigger a bailout, it serves as a harbinger because that's the level exceeded by Greece, Portugal and Ireland before they got bailed out by their eurozone neighbors.

Spain is the fourth-largest economy in the eurozone, behind Italy. And yields on Italian 10-year bonds have already flirted above that 7% level a few times over the past couple of weeks.